Financial success isn’t just about increasing income, but effectively controlling your expenses too.
The humbly successful and famously-frugal Warren Buffett warns against excessive spending on luxuries and indulgences if we want wealth and financial freedom.
“Beware of little expenses. A small leak will sink a great ship”
Buffett, renowned for being careful with money considers spending on first-class flights as a needless extravagance arguing that the money would be better off invested for gradually compounding returns.
First-class travel is certainly a luxury and sometimes (but not always) expensive. I disagree that it should never be considered as an option though. Used in the right way, and for the right reasons, it’s often the smart choice.
“Price is what you pay. Value is what you get.”
This quote, also from Warren Buffett demonstrates my point exactly.
Often we think of the price as the only factor in considering the value of something. Value is often determined by many other things over and above cost. First-class on a plane or a train is more than a status symbol of the wealthy; there are many other things that make it valuable.
There’s the comfort factor. I travel a lot for business, usually for around 12 weeks of the year. Some of that’s alone, and other times with my wife and kids, combining my vocation with a vacation.
As a tall guy, it’s impossible for me to sleep on a plane in economy-class, so I often travel business or first-class. The extra-cost (which may be £1,000 or £1,500 more) is easily worth it for knowing that I’ll arrive rested, refreshed and ready to work rather than losing a day or more of productive work as I recover from the flight.
I’m bad enough when I’m late to bed after a speaking engagement, so to lose a full night’s sleep through an uncomfortable flight isn’t worth the risk!
When I’m travelling with the kids, it’s also a far easier and more pleasant experience for them, and for me and my wife as a result!
Beware the opportunity costs of the cheap option
“A man who dares to waste one hour of time has not discovered the value of life.”
It’s essential to value your time appropriately and be clear on what it’s worth financially. When you protect your time and know its value on an hourly basis, you can consider the cost of first-class travel and other expenses by comparing them with how much more income it will allow you to generate. If your time is worth £1,000 or even £100 per hour then to lose a whole day of work by taking the cheaper option, effectively results in a monetary loss. Avoiding that loss could easily offset the cost of the first-class ticket.
Flying economy-class or travelling standard-class on the train can mean a cramped, disturbed and miserable journey. A first-class ticket generally gives you more space, better facilities, quicker Wi-Fi, a comfier seat and the opportunity to do some high quality work rather than having to just survive through the journey.
First-class doesn’t even have to come at great expense. I’ve recently paid around £25 to upgrade a standard ticket to first-class on trains from London to Peterborough. For £25 I’m able to sit in a quieter carriage, with space and a table, get my laptop out and get some work done. I generate many times more than the additional cost in extra income.
If you can’t make £25 from an extra hour of work, then there’s probably something wrong with the work that you’re doing!
Consider the alternative; crowded into a standard carriage, possibly standing nose-to-armpit with other commuters with little chance to do any useful work, hoping that the journey will soon be over. It’s a no-brainer really.
The same is true for other forms of transport. I used to try and save money here and there by staying in the cheaper hotels, further away from my meetings. I’d walk or use buses and the underground rather than take a cab, but I now see this as the false-economy that it is. When I travel by taxi, the car comes to me, I can charge my phone, rest and catch up on calls, email and social-media during the journey. I arrive quicker, calm and relaxed, having made best-use of the travel time rather than having just lost the time through travel.
There can be a law of diminishing returns on money saved compared to what it actually costs you. Is it sensible to save £5 cash spent on a journey if that saving costs you £10 in lost productivity?
I’ve also got a driver who takes me to meetings from time-to-time. It sounds like a luxury but I can assure you it makes sense! One day recently we spent four and a half hours on the road getting to and from a speaking engagement after getting stuck in traffic. If I’d been driving it would have been a disaster for my productivity and for the loss of useful time. I’d also have arrived feeling frustrated, flustered and in a foul mood. Instead, I got over three hours’ work done which was probably worth between £1,500 and £15,000 in income generated.
Certainly it covered the cost of the driver!
Start Small, Gain Big
Be clear, I’m definitely not saying travel first-class around the world when you’re £50k in debt. I’m also not suggesting that you rush out to get yourself a driver (although this in particular has been massively useful to me). As always, my advice is to start small and test!
On your next train trip, travel standard class and see how much work you get done. The time after that, upgrade to first-class and see what the effects are. If you can get more work done, or outsource some tasks while travelling that generate income or value, then it’s probably been worth the additional cost.
“It’s not your salary that makes you rich, it’s your spending habits.”
I’d be interested to see how much more money Warren Buffett could have earned in a parallel universe, travelling first-class and benefitting from the extra productive hours. His hourly income generating value must be in the hundreds of thousands!
A Privilege of the Rich or a Practice of the Successful?
I’ve studied the habits and practices of the successful and I particularly admire those who are successful but remain grounded. I don’t see first-class travel as something that should be bragged about or preserved as a luxury for the rich. I also don’t judge someone’s choice to travel first-class as a commentary on them as people. Many of the speakers we employ seem to favour first-class, or at least they do when I’m paying the bill! Some even prefer a private jet! I’m amused to read that in his later years Warren Buffett has also seen the benefits of occasionally leasing a private jet too. Maybe he’s seen the light!
It’s essential that we understand our income generating value and then consider the costs of first-class travel and other so-called indulgences against that.
What’s the best use of your time and energy? Will saving a few pounds on your travel actually cost you more in lost business or unproductive time?
What’s going to give you the best return on your money AND your time? Sometimes you have to invest a bit more money to get the best return on your time for you and your business.
The short term cost often leads to bigger returns, even if that’s in letting you rest, relax and recover properly so that you stay healthy and productive for the long term.